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Leighton Holdings rings up 240% profit increase

With the mining industry slowing down, and putting projects on hold recently, economic gloom has set in, but Leighton Holdings (ASX: LEI) released their interim six-month report today, reporting a 6% increase in revenue, up $592 million, and a whopping 240% increase in net profit, up from $135.7 million to $553.5 million.

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Source: Leighton Holdings Half-Year Report August 2013

It has been a hard year. The share price has been trapped in its $15-$25 a share trading range since 2011, and the company was removed from the ASX 20 Index in June. It has been testing the bottom of that range since hitting the $25 top back in February. At about two times book value per share, it is not at a bargain-basement price, but back in 2010 was selling at around $30 a share. That was still half of its all-time high of about $60 just before the GFC hit.  That was then, this is now.

What also helped the profit explode was the sale of 70% of its telecommunications assets to the Ontario’s Teachers’ Pension Plan in June. Leighton estimated the sale would bring in about $500 milliion of post-tax proceeds, which would reduce the company’s gearing by more than 10%. That’s good because their gross gearing was already at 94% in December 2012. Selling down non-core assets is the way to free up cash, and concentrating on what it does best.

Work in hand is at $40.1 billion, and it has received $3.9 billion in awards since the June balance date. An interim dividend of 45 cents 50% franked was declared, up from 20 cents unfranked from the previous corresponding period. It’s still down from the 60 cents it once gave back in 2011, but the trend is up.

Apart from its mining related projects, Leighton also has a steady pipeline on non-mining infrastructure projects ranging from new railways in Sydney and Brisbane to ongoing work with Chevron’s Gorgon Gas Project in WA. In addition, in January they were awarded a $1.8 billion Hong Kong infrastructure project to build a hospital, rail station and train tunnels. The mix of mining to infrastructure work will be roughly the same so that they can be diversified as the mining industry goes off the boil.

Foolish takeway

Leighton may not be a hot stock with fantastic profit margins, but they are trying to position themselves for the future.  Investors with a long-term view who know market cycles may see this time as a turning point, and have the patience to ride it out.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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